No major capital inflows, as investors remain sceptical: Blunck, Munich Re

Speaking today in Monte Carlo at the annual reinsurance market Rendez-Vous de Septembre event, Thomas Blunck, a Member of the Board of Management at global reinsurer Munich Re, said he does not expect major capital inflows to either the traditional or alternative sides of the market.

Because of this, Blunck implied that the reinsurance market will likely sustain its firmness, although he would not be drawn on any prediction for the hard market continuing, preferring to say that Munich Re will treat every ceding company individually to determine the rates it will ask to be paid.

Blunck noted that, on the traditional reinsurance side, while some capital has been refilled in the last year, “The main message that I would use to give a picture of this, is we don’t have a massive capital inflow and that means the market dynamics are not changing.”

Going on to add, “The market dynamics we’ve seen recently in the renewals, I would expect them to prevail also going forward.”

Blunck then said that, for insurance-linked securities (ILS), “A similar picture for the alternative risk transfer market. Here, the overall capacity, a very slight increase. But again, also no major capital inflow.”

He stated that there have been “some structural changes,” in the terms of ILS products, adding, “I think there’s, by investors, a preference for cat bonds, shifting partly capital from collateralized reinsurance solutions like sidecars, into cat bonds.”

He further explained, “That also implies moving up in risk-remoteness, cat bonds tend to come on higher layers and less the lower layers, like sidecars. So a similar preference from the investor side, like we have seen from the traditional capacity markets recently, in the last renewals.”

Blunck summarised the outlook for alternative reinsurance capital as, “I would say here, the outlook is very similar, I wouldn’t expect major capital inflows.”

On the appetite of investors to supply more capital to ILS structures, Blunck has again a similar view to the one held on the traditional side of the market.

“There’s still some scepticism out there by investors about the sustainable profitability of the reinsurance business or reinsurance risks.

“We have those players here that are participating and continuing to allocate their capacity, but not a big move or change in terms of a major increase,” he said.

But Blunck said that Munich Re has ample capacity and continues to have an appetite to grow further in natural catastrophe reinsurance risks, as long as pricing remains attractive.

“That means, the alternative risk transfer, we would see it as a good complementary niche for the overall risk capacity of our industry,” Blunck said.